Over the past month, the NAA has issued notices to about 10 of Patanjali’s biggest distributors for not reducing prices in line with the cut in GST

Patanjali Ayurved distributors have come under the lens of National Anti-profiteering Authority (NAA) for not passing on lower GST rate benefits to customers, according to a report by The Economic Times.

Over the past month, the NAA has issued notices to about 10 of Patanjali’s biggest distributors for not reducing prices in line with the cuts in Goods and Services Tax (GST), sources told the newspaper. The notices seek details of prices charged on products, particularly cosmetics.

Since the introduction of GST on July 1, 2017, the government has lowered rates on various goods.

In October 2018, the anti-profiteering authority had asked Baba Ramdev-led Patanjali to pay Rs 150 crore penalty for not passing on the lowered GST rates to its customers over the last one year. While investigations in this matter are ongoing, media report suggests that the company may appeal against the decision.

Other companies including Hindustan Unilever (HUL), Procter & Gamble (P&G), Johnson & Johnson (J&J) and Hardcastle Restaurants, a franchisee of fast food chain McDonald’s, have also come under NAA’s lens for similar reasons.

Apart from Patanjali distributors, the authority is also examining whether prices on consumer goods and pharmaceuticals held by distributors and stockists on June 30, 2017, were reduced after GST kicked in the next day.

“The (distributor) was legally bound to pass on the benefit of reduction in the GST rate to customers, which he has not as it is apparent from the invoices,” the authority said in one of the notices reviewed by the newspaper.

Tax experts, however, point out that there’s no prescribed formula to determine whether benefits have been passed on to customers. “As of now, there is no methodology that the government or NAA has prescribed to arrive at anti-profiteering and so several companies are facing a challenge,” Abhishek A Rastogi, Partner, Khaitan & Co told the newspaper.

Considering there were many tweaks in GST, it would have created a lot of complications for distributors to not just calculate but also pass on the benefits, Rastogi added.

Many companies were also uncertain about the time taken to get tax credits and doubts persisted about passing benefits to consumers before or after they received the money from the government.

To avoid breaching anti-profiteering norms, some companies changed product composition, according to the report. “So, a 100 gram cream would become 110 grams. And when details are sought, the companies would say these are two different products and hence prices before and after GST are not comparable,” a source told the paper.

The anti-profiteering authority has asked companies to produce evidence, wherein they have advised their trade partners to pass on the benefit to consumers. Companies, however, are finding it difficult to ascertain whether distributors have passed on the reduced levies.

“Once the stock is sold to the distributor, the companies do not have much control over pricing of the same and many of them have pointed this fact out to the NAA,” a source told the newspaper.